Interest on Delayed GST Refunds for Exporters
1. The Core Dispute: Prolonged Pendency of Refund Claims
The petitioner, an exporter, sought a refund of GST paid on zero-rated supplies. Despite the completion of exports and the filing of valid refund applications, the claims remained undecided for over one year.
Petitioner’s Argument: Section 54(7) of the CGST Act mandates that a proper officer must issue a refund order within 60 days from the date of receipt of a complete application. The delay was causing a severe working capital crunch, and as per Section 56, they were entitled to interest for the delay.
Revenue’s Stand: The department eventually provided an undertaking in court to expedite the decision, acknowledging the delay.
2. Legal Analysis: The Mandatory “60-Day” Rule
The Court emphasized that the timelines for processing GST refunds are not merely “directory” but mandatory.
I. Prompt Decision-Making (Section 54)
The proper officer is legally bound to either sanction the refund or issue a show-cause notice (SCN) for rejection within the statutory window.
The Ruling: Failure to act within 60 days constitutes a breach of statutory duty. The blocking of refunds has a “cascading adverse effect” on the business operations of taxpayers.
II. Automatic Accrual of Interest (Section 56)
Under Section 56, if a refund is not sanctioned within 60 days of the application, interest at the rate of 6% per annum becomes payable.
Compensatory Character: The Court clarified that interest under Section 56 is automatic and statutory. It is a compensatory mechanism and does not depend on whether the taxpayer specifically claimed interest in their original application.
Calculation: The interest clock starts ticking from the 61st day after the application date and continues until the date the refund is actually credited to the bank account.
3. The Ruling: Mandamus and Mandate
The High Court accepted the Revenue’s undertaking to process the claim within a four-week window but added strict observations regarding interest.
Communication Deadline: The authority was directed to communicate the final order on the refund claim within four weeks.
Mandatory Interest: The Court ordered that if the refund is sanctioned, the department must calculate and pay the statutory interest at 6% per annum for the period of delay.
Enhanced Interest: Notably, if the refund arises from an order of an appellate authority or court that has attained finality, the interest rate under the proviso to Section 56 is enhanced to 9% per annum.
Key Takeaways for Exporters
Monitor the 60-Day Window: Once this period expires, you have a legal right to interest.
No Separate Interest Claim Required: You do not need to file a new form to ask for interest; the officer is required to include it in the Payment Advice (RFD-05).
Writ Remedy for Stalemate: If your refund is stuck for an unreasonable time (like one year in this case), you can approach the High Court under Article 226 for a “Mandamus” (a court order to a public official to perform their duty).
Check Deficiency Memos: Ensure you respond to any Deficiency Memo (RFD-03) within 15 days, as delays on your part might lead to a “restart” of the 60-day clock or exclusion of that period from interest calculation.